Local government bulletin archive

Financial arrangements requiring the Treasurer's approval

Purpose

To remind local governments they must seek the Treasurer's approval before entering into certain financial arrangements, for example, forming a company, or entering into joint ventures, partnerships or trusts.

Background

Section 60A of the Statutory Bodies Financial Arrangements Act 1982 (the Act) states a statutory body (including local governments) may, with the Treasurer's approval, enter into a Type 1 financial arrangement.

A 'Type 1 financial arrangement' is defined in the Act as an arrangement that provides for, relates to, is directed towards or includes one or more of the following:

(a) Entering into or performing a deferred payment arrangement if the payment period is more than three years.
(b) Entering into a joint venture, partnership or trust.
(c) Forming, or participating in forming, a corporation.
(d) Acquiring, consolidating, dealing with, disposing of, holding or issuing bonds, debentures, inscribed stock, shares, stock or other securities of any statutory body or corporation.
(e) Entering into an arrangement, covenant, guarantee, promise or undertaking to meet liabilities or obligations incurred by or to a person, whether or not the person is a party to the arrangement, covenant, guarantee, promise or undertaking.
(f) Underwriting an issue of debentures, shares or other securities.
(g) Entering into another arrangement prescribed under a regulation as a Type 1 financial arrangement.

Key points

Common transactions that fall under the above requirements include:

The granting of loans to community organisations where the term for repayment exceeds three years falls under the definition noted in paragraph (a) above.

The granting of an indemnity in favour of another party falls under the definition noted in paragraph (e) above. Indemnity clauses are contained in many contracts and agreements. The following clauses are examples of the wording that may be contained within an agreement to be entered into by council:

'Council will indemnify (and will keep indemnified) the OTHER PARTY and its personnel from and against all liabilities, damages, losses, costs and expenses of any kind that the OTHER PARTY or any of its personnel suffer, sustain or incur due to any claim, action, proceeding or demand by any person in connection with or arising out of the WORKS.'

'Council shall indemnify the OTHER PARTY against any damage to or loss of any property owned by the OTHER PARTY, or any liability which the OTHER PARTY may incur to any person as a consequence of any loss of property, damage to property, personal injury or death occasioned to or suffered by that person, to the extent that the damage to or loss of property or the personal injury or death is wilfully caused by the council or its representatives, or attributable to the negligent or reckless act or omission of the council or its representatives.'

Please note Treasury's requirements for granting approval for the formation of a corporation are quite extensive. Council should first contact the department for guidance.

Council should ensure that all proposed financial arrangements and contracts are reviewed to ascertain whether the Treasurer's approval is required. A request containing the complete details of the proposal should then be made as soon as possible to the department to allow sufficient time for the department to assess council's request and to obtain the necessary approvals from Treasury on council's behalf.

Councils are also reminded that should they wish to borrow (including finance leases), obtain a working capital facility, enter into a bank guarantee arrangement, or enter into derivative transactions, that they must also seek approval. These arrangements are covered under other sections of the Act.

It remains the responsibility of each council to familiarise themselves with the Act.

Register of approvals to be maintained
Section 74 of the Act requires that a statutory body keep a register of the Treasurer's approvals. There is no prescribed form for the register and it is considered that a binder with a copy of the Treasurer's approvals would be sufficient.